Forget the Chatter, This is the Democrats' Real Problem

When a party suffers a major setback, everyone comes forward with their diagnosis of the problem. And in most cases their diagnosis of the problem tells us that the solution is what the diagnoser wanted to do more of in the first place. This is just human nature. We see the evidence before us as confirmation of what we already thought. When I'm asked these kinds of questions, what I always say is that we should be highly skeptical of anything that suggests the answer is obvious or simple to execute. Because for all the groupthink and folly and insular thinking of political professionals, they're generally fairly bright and they have huge personal and professional incentives to win. If it were really that obvious, someone would have tried it already.

I tend to agree that Democrats should have run more clearly on their economic record, though I do not think it would have been a game changing move. And there are various other supposed errors that I agree were errors. But here are my two basic takes on what happened.

First, more of this than we are inclined to admit at the moment was beyond the Democrats' control or was so baked into the cake by election time that there was little political strategists could do about them. It's the sixth year of a president's term (bad); the president is not popular (bad); most key races were in red or purple states (bad); the current Democratic coalition consistently drops off from voting in non-presidential elections (bad). Putting all these things together, frankly, you almost wonder how they didn't do worse. What this doesn't account for, however, is the loss of key governors races where Democrats should have or seem to have had a good shot at winning - Illinois, Massachusetts, Maryland, more marginally Florida and Kansas and Wisconsin.

It also seems clear - though just how to measure it is difficult - that the rise of ISIL and the Ebola scare created a general feeling that the country was adrift and threatened. That further depressed the President's popularity and that spilled over to his party.

All of these things fit into the mix and others too. But I want to focus on something that I don't hear much talk about and which I think is a big central issue for Democrats going forward.

Democrats have toyed (and I use that term advisedly) with the issue of rising inequality for the last two elections. But let me suggest that as a political matter inequality is a loser. What is driving the politics of the country to a mammoth degree is that the vast majority of people in the country no longer have a rising standard of living. And Democrats don't have a policy prescription to make that change.

Here is a chart we've probably all seen some version of. The gist is that while productivity growth has been relatively consistent through the post-war period, productivity became unchained from wages in the early 1970s. Despite a modest bump up in the 90s and another small one in the aughts it's really never come back.

Then there's this chart (courtesy of The Upshot) showing the slow but nonetheless steady decline of unemployment since what was one of the greatest economic crises of the last hundred-plus years.

My first chart only goes through 2010. But the gist is that wage growth has basically flat-lined since the crisis and Friday's latest job numbers show no signs of that changing. Again, if you follow macro-economics you know all this stuff like the back of your hand. And when I say that this is the issue rather than 'economic inequality', this is obviously one side of the equation which is driving rising inequality. You might even say this is the same thing, only expressed in a different way. But it's a critical difference.

Fundamentally, most people don't care particularly how astronomically wealthy people are living their lives. It is a distant reality on many levels. They care a great deal about their own economic circumstances. And if you are not doing any better than you were 5 years ago or a decade ago or - at least in the sense of the hypothetical median wage earner - 40 years ago, that's going to really have your attention and shape a great deal of your worldview and political outlook.

So, let me sign up with those who are saying that it was a mistake not to run more clearly on the President's (and the Democrats') economic record. Unemployment is back down to something like normal levels (under 6%); the deficit has fallen consistently and is now back to pre-crash levels judged as a percentage of GDP (which is the only meaningful way to judge it); the stock market has done incredibly well. Yes, totally.

But here's the thing: As long as most voters are still just treading water in their own economic lives, Republicans can say, "Oh yeah, they say the economy's doing great with all their fancy numbers. But that's not what I see!" To an extent that will just be another Republican paean to innumeracy. But it will resonate because rising employment is not leading to rising wages. And that's the core economic experience of wage earners who make up the overwhelming number of people in the country. In a critical sense, it is true.

So yes, run on the record. And at least at the margins, make the argument that in Europe they went down the austerity path Republicans have pushed for and it's been a disaster. No one really questions that anymore. But also recognize that the unchaining of wage growth from economic growth means the record isn't really that good, even though it could have and Republicans tried really hard to make it much worse.

Now, many Democrats look at all this and say this is way the party needs to embrace economic populism whether of the Elizabeth Warren or Bernie Sanders variety or whoever else might be espousing it in more or less watered down ways. But I think this misses the point. The great political reality of our time is that Democrats don't know (and nobody else does either) how to get wage growth and productivity growth or economic growth lines back into sync.

We know a fair amount about why they got out of sync. Decreased bargaining power resulting from the steep decline in the labor movement, a whole series of vast structural changes in the economy we put under the heading of 'globalization', rapid changes in technology which play a big role in the first two transformations in my list and a bunch of other things. What complicates the question is that at a certain point economic trends that concentrate wealth at the top magnify themselves as the winners use the political power derived from that wealth to lock down and expand their gains.

The key point for this discussion is that these are not only changes that are global in nature (happening almost everywhere at once) they are also changes that seem to a significant degree to be tied to the accelerating integration of global economies. As you can see in the chart below, increasing concentration of wealth at the top has happened across the board in all industrialized countries. But nowhere has the concentration been more extreme than in the United States, though notably, the top rivals are the UK and Canada which most closely mimic the US's laissez-faire economic policies.

But what are the policies that would change this corrosive trend? And how do you run on them as a party if you don't know what they are? Minimum wage increases help those at the very bottom of the income scale and they have a lifting effect up the wage scale as the floor gets pushed up. But it is at best a small part of the puzzle. Clamping down on tax dodges by the extremely wealthy claws back some resources for the treasury and sends an important message, as might some restrictions on ridiculously high CEO pay. But again, these are important changes at the margins that do not fundamentally change the equation. Economic populism or another comparable politics with a different tonality won't get you very far if you can get beyond beating up on the winners to providing concrete improvements to those losing out in today's economy.

Again, a stark reality: Democrats don't have a set of policies to turn around this trend. Republicans don't either, of course. But they don't need to. Not in the same way. As a party they are basically indifferent to middle class wages. And their policies stand to make the situation even worse.

I'm basically a semi-knowledgable outsider to public policy discussions. And I know a bunch of people will come forward to say, wait there are a whole bunch of policies we can and should be following. And before this seems like a total counsel of despair, I'm sure there are. But a few cautions. First, I don't know many knowledgable people who have a lot of confidence that public policy in the US can arrest or reverse changes that appear to be structural and global in nature. The right approach may be germinating in a think tank somewhere. But which one?

Second, policies don't exist in a vacuum. They need a politics to sustain them. Tax cuts as an elixir for every problem in the American body politic may be running out of steam. But it wasn't so potent because of its policy merits, which haven't made much sense for decades. It was potent because a generation of activists and politically minded people were reared on the idea and a vast political coalition was built around them. So find the policies, if there are any, build a political coalition around them. And then, don't forget: the spiraling rates of wealth concentration have created a political economy in which organized wealth is extremely well positioned to beat back any challenges to its gains.

Believe it or not, I'm not a pessimist on all this stuff. But you cannot make middle class wage growth and wealth inequality the center of your politics unless you have a set of policies which credibly claims some real shot at addressing the problem. At least not for long.